If you’re working hard in a career and determined to build a pot of money to finance an easier lifestyle later, here are three things you can do right now.
1. Move cash savings to accounts with better interest rates
Banks and building societies love it when you’re busy! I reckon they know you’ll struggle to find the time to monitor your cash savings. And they often seem to take advantage of the inertia of their customers by moving interest rates down.
You probably picked your cash-savings or ISA accounts in the first place because they were hitting the top-lists for interest rates. But look at then two or three years later and you could be in for a nasty shock. Instead of top rates, you could find that you are now earning some of the lowest interest rates around.
It seems to me that rather than being rewarded for our loyalty, these days the banks and building societies like to penalise us for it. So don’t be loyal. I’d recommend reviewing all your cash savings at least once a year and transferring your funds to the providers offering the best rates at the time.
Price comparison websites such as moneysupermarket.com can help you search for the best rates quickly.
2 Get your pensions sorted
If you’re not paying into a pension scheme, I reckon it’s a good idea to start doing so. The money you pay into a pension will be free of income tax and if you can participate in a Workplace Pension Scheme, your employer will pay extra money in for you.
Those two advantages can really help to boost the funds you accumulate. But even if you can’t get into a workplace scheme, you can still get the tax advantages if you open a Personal Pension or a Self-Invested Personal Pension (SIPP). And with SIPPs you have full control over the investments you put in your pension. I’d fill mine with share-backed investments, such as funds and trackers, and perhaps some dividend-paying company shares like those of Unilever, GlaxoSmithKline, British American Tobacco and Diageo.
It’s also worth considering consolidating your pensions if your career has left you with a trail of different schemes. Bits of money here and there can be unwieldy and hard to keep an eye on. I did that a few years ago and transferred everything into one SIPP account. It’s simpler to manage, and now I have full control of my retirement funds, which I’ve diverted to the shares of my own choosing.
3 Allocate regular money to share investments
Within your pension scheme, even managed funds will often be allocated to shares and share-backed investments. Over time, the returns can be higher than those achieved from cash savings, bonds and property-backed investments.
I’d choose managed share funds, passive index tracker funds, and some high-quality individual shares for my SIPP. But it’s also worth considering putting extra money into a Stocks and Shares ISA to take advantage of the tax concessions on offer. All your gains will be free of tax and the returns from shares and share-backed investments could beat cash savings in the long run.